Emerging market debt outperforms weak Treasuries; several corporates sell deals

By Reshmi Basu and Paul Deckelman

New York, May 9 - Emerging market bonds dipped slightly on a dollar basis Wednesday amid a quiet session during which the Federal Open Market Committee decided to keep interest rates steady.

However, spreads tightened by four basis points as the sector outperformed the weak U.S. Treasuries performance, suggesting that investors' appetite for risk is still intact.

In the primary market, several issuers tapped the capital market.

Argentinean natural gas pipeline operator Transportadora de Gas del Sur (TGS) sold a $500 million offering of 10-year amortizing notes (B1/B+) at par to yield 7 7/8%.

The deal came at the rich end of guidance, which was set for a yield in the 8% area.

The notes are non-callable for five years. Four equal amortizations will start in the seventh year.

Proceeds from the sale will be used to refinance existing debt.

Merrill Lynch and JP Morgan were lead managers for the Rule 144A and Regulation S deal.

Two more Asian deals

In other primary news, two corporates from Asian issued new debt.

Out of Korea, electronic maker LG Electronics Inc. sold a $500 million offering of five-year floating-rate notes (Baa3/BBB-/BBB-) at 99.653 for a discount margin of three-month Libor plus 73 basis points.

The deal priced in the middle of guidance, which was set at 70 to 75 basis points over Libor.

Deutsche Bank, HSBC, JP Morgan, Korea Development Bank and Morgan Stanley were lead managers for the Regulation S deal.

From Hong Kong, trading and export company Li & Fung Ltd. sold a $500 million offering of 10-year bonds at 99.378 to yield a spread of 94 basis points more than Treasuries.

Citigroup and HSBC were lead managers for the Regulation S deal.

Elsewhere, Central European Media Enterprises Ltd. priced a €150 million issue of seven-year senior floating rate notes (Ba3/expected B+) at par to yield Euribor plus 162.5 basis points on Wednesday.

The coupon came on the tight end of the Euribor plus 175 basis points area price talk.

JP Morgan, Lehman Brothers and ING were joint bookrunners for the Regulation S transaction.

Proceeds from the notes sale will be used for general corporate purposes including the potential purchase of additional ownership interests in existing operations.

The Hamilton, Bermuda-based company has broadcast operations in Central Europe.

BBVA sets guidance

In other primary news, Mexico City-based BBVA Bancomer SA set price guidance for its two-part offering of euro-denominated and dollar-denominated notes.

Guidance for the tranche of euro-denominated 10-year tier II notes (A1//BBB+) is mid-swaps plus 45 basis points. The notes will be non-callable for five years. If not called, the fixed rate coupon changes to floating rate and steps up by 100 basis points.

Meanwhile the $500 million tranche of 15-year tier I notes (A1//BBB+) was talked at Treasuries plus 140 basis points. The notes will be non-callable for 10 years. If not called, the fixed rate coupon changes to a floating rate and steps up by 100 basis points.

Proceeds will be used for general corporate purposes.

Credit Suisse, Deutsche Bank and BBVA are joint lead managers for the Rule 144A and Regulation S deal, which will be issued via the bank's Grand Cayman branch.

Coming from Russia, Ursa Bank revised price talk for its euro-denominated offering of three-year bonds to 7% to 7¼% from the 7¼% area.

The books are already more than three times oversubscribed ahead of pricing expected Thursday.

ABN Amro and Deutsche Bank are lead managers for the Regulation S deal.

Adding to the pipeline, India's Bank of Baroda plans to start a roadshow for a dollar-denominated offering of 15-year upper tier II bonds next week.

Presentations will begin in Singapore on Monday, in Hong Kong on Tuesday and in London on Wednesday.

Deutsche Bank, Citigroup and Barclays Capital are lead managers for the Regulation S deal.

EM quiet

In the secondary realm, EM bonds were seen fairly quiet and not too much changed on the day in the wake of the decision by the Federal Reserve's policy-setting Federal Open Market Committee to leave the key U.S. overnight borrowing rate at 5.25% and to focus on heading off any incipient inflation - seen as a signal that U.S. rates are unlikely to be lowered, at least in the near term.

Brazil's global bonds due 2040 were quoted going out at 135.8125 bid, down slightly from their 135.85 finish on Tuesday, although they had been down more right after the Fed decision was announced, but recovered some of those losses before the close.

Mexico's local bonds higher

Elsewhere, Mexico's 10-year peso-denominated benchmark bond was seen up about a third of a point to 97.08, while its yield fell 5 bps to 7.68%.

The bonds, up for a third straight session, rose in line with the firming of the peso, which hit its highest level in four months ahead of a government report on inflation in April, with investors betting that it would show continued progress in reining in prices.

Sure enough, when the much-anticipated report was finally released Wednesday afternoon, it showed inflation down 0.06% last month - a comeback from March, when prices had risen 0.22%. That brought the country's annual inflation rate well down to 3.99%, versus 4.21% in March.

However, analysts believe that prices could head back upward again, and so does the Banco de Mexico, which last month raised its key loan rate to 7.25% as what it called "a preventive" anti-inflation measure - the first rate hike seen in two years.

New issues from tighter

A trader in Asian debt said that "not very much at all" was going on from where he sat, although he saw some aftermarket levels in the new deals which had priced earlier in the session.

He saw the new Li & Fung 10-year bonds quoted "about 3 or 4 basis points inside" the issue price at 94 bps over Treasuries, pronouncing the issue "pretty well received."

He saw LG Electronics' new seven-year bonds quoted at a bid spread of 72 bps over Libor and an offered spread of 68 bps, in slightly from the issue level at 73 bps over.

Other than that, he said, "spreads for the most part were unchanged, and inquiries were very, very light today."

In the sovereign market, five-year CDS contracts based on Philippines bonds were going home at 107-109 bps, 2 bps wider on the session versus day-earlier levels in New York, and unchanged from closing levels earlier in Asia.

The 2032 Philippine bonds themselves closed at 98 bid, 98.25 offered, while the Indonesian sovereign 2037 bonds closed at 99.875 bid, 100.125 offered.

Also on the Asian front, a trader saw the bonds of Korean computer chip manufacturer MagnaChip Semiconductor Ltd. better, though on "no news" - he saw its 8% notes due 2014 at 71.5 bid, 72.25 offered, up a point on the session.

At another desk, the 8s were seen up a point at 71.5, the company's floating-rate notes due 2011 were nearly a point better at 92, while its 6 7/8% notes due 2011 were ¼ point better at 87.25.

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